Chargebacks are one of the biggest profit killers for online businesses today.
They nibble away at your profits and tarnish your reputation with payment processors. The worst of it is that most chargebacks can be avoided.
With the right approach to your online payment processing setup, you can:
- Stop most disputes before they happen
- Win the ones you do receive
- Protect your business from being labelled “high risk”
Here’s how to do it…
What you’ll discover:
- Why Chargebacks Are Hurting Online Businesses
- The Real Cost Of A Chargeback
- 5x Practical Strategies To Reduce Chargebacks
- How To Win The Chargebacks You Can’t Avoid
Why Chargebacks Are Hurting Online Businesses
Chargebacks are growing out of control.
It’s alarming. Ecommerce chargeback rates increased 222% from Q1 2023 to Q1 2024. They’re only expected to climb higher. Online merchants everywhere are feeling the squeeze.
Why is this happening?
It’s easier for customers to file a charge dispute with their bank than it is for them to reach you. Friendly fraud (actual customers initiating a chargeback on a legitimate transaction) has skyrocketed in recent years. And CNP transactions are much more susceptible to chargebacks.
Here’s the kicker:
If you don’t have your ecommerce payment processing setup optimized, you’re leaving your door wide open. Partnering with a company such as Limitless Payment Solutions can significantly decrease your dispute rates with enhanced fraud tools, proper billing descriptors, and robust authentication.
Most merchants don’t understand how empowered they are when it comes to chargebacks. They view disputes as “cost of doing business” – and that’s a big mistake.
The Real Cost Of A Chargeback
A chargeback isn’t just losing the sale.
When a customer files a chargeback, you lose:
- The product: which is usually already shipped
- The revenue: from the original transaction
- The chargeback fee: typically $20-$100 per dispute
- Time: spent gathering evidence and responding
And it gets worse.
Fraud costs US merchants $4.61 for every dollar lost — adding significantly more than the dollar amount of the original transaction to your costs. Your processor monitors your chargeback ratio closely. Exceed certain benchmarks and you can expect increased fees or possible termination of your merchant account.
That means a few unhappy customers can put your whole business at risk.
5x Practical Strategies To Reduce Chargebacks
Ok, now for the good stuff. Here are 5x proven strategies you can implement today to lower chargebacks.
Let’s jump in!
Use A Clear Billing Descriptor
This is the easiest fix in the book.
If there’s an unfamiliar charge on a customer’s statement, they don’t email you. They don’t check Facebook. They pick up the phone and call their bank.
Your billing descriptor needs to be:
- Recognisable
- Short and clear
- Matched to your brand name
Your descriptor is the words that appear on your customer’s statement IDENTIFYING YOUR STORE. If your store name is “Sunny Shoes” but your descriptor says “SS-MERCH-44211” — you need to fix that. Change your descriptor with your payment processor and let your customers know exactly who charged them.
This single fix can cut your chargebacks by a noticeable margin.
Build A Bulletproof Refund Policy
A lot of chargebacks happen because customers feel ignored.
Customers attempt refund, get rejected and escalate directly to their credit card company. Almost 50% of cardholders named resolution time as the reason they issued a chargeback. That should say it all about responsiveness.
Your refund policy should be:
- Easy to find on your website
- Written in plain English (no legal jargon)
- Generous enough to keep customers happy
Keep refunds easy. Keep refunds fast. Refunds almost always cost you less than chargebacks. So the numbers are in your favor.
Verify Every Transaction
Fraud is one of the leading causes of chargebacks.
You must verify each and every transaction with the tools at your disposal. This means:
- AVS (Address Verification System): matches the billing address to the card
- CVV checks: confirms the customer has the physical card
- 3D Secure: adds a verification layer like Verified by Visa
- Velocity checks: catches multiple orders from the same card or IP
Stack them up. No tool catches 100% of fraud, but together they make fraudsters’ jobs very difficult.
Keep Detailed Records
Chargebacks aren’t always preventable. But you can win them when they happen.
To win a dispute you need solid evidence. Keep records of:
- Order details and timestamps
- IP addresses used at checkout
- Shipping and delivery confirmations
- Customer email correspondence
- Signed delivery receipts (where available)
The more evidence you have, the better chance you have of winning when fighting a chargeback. Many merchants fail to prevail in disputes due to lack of appropriate documentation.
Watch For Friendly Fraud
Friendly fraud is the elephant in the room.
That’s when an actual customer disputes a legitimate purchase. Perhaps they forgot they ordered it, didn’t recognize the description or just changed their mind they wanted a refund. Credit card networks believe up to 70% of credit card fraud comes from abuse of chargebacks also referred to as friendly fraud.
To catch this you should:
- Track repeat offenders and blacklist them
- Use fraud detection tools that flag suspicious patterns
- Respond quickly to customer complaints
Friendly fraud is harder to prevent than true fraud, but you can fight back.
How To Win The Chargebacks You Can’t Avoid
Some chargebacks will get through.
When that occurs, you must battle them. The process is called “representment” — presenting evidence to the issuing bank.
Your evidence package should include:
- Proof of delivery
- Customer communication logs
- Original order details
- Refund policy acknowledgement
Don’t ignore chargebacks. Every chargeback you ignore is revenue leaving your company. Provide a compelling representment on every dispute — you win more than you think.
Bringing It All Together
Reducing chargebacks isn’t about one magic trick.
Defense in depth. Set your billing descriptor up correctly. Make your refund policy customer friendly. Authenticate every transaction. Maintain excellent records. And vigorously defend those disputes you can win.
If you follow these tips, you’ll decrease your chargeback ratio — translating into more income, lower fees and a healthier merchant account. Chargebacks are not a “cost of doing business.” The merchants who think they are, eventually lose their merchant accounts.
Don’t be one of them.
Start with low hanging fruit (clean up your descriptor) and move through your list. In a couple months you will begin to see significant changes to your bottom line.
